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Kyle Bass On The Federal Budget: "I Don't Know How To Fix This"
Hayman Capital's Kyle Bass is back and cutting through the caustic bullshit that surrounds every waking moment in this kick-the-can world. Dispelling the myth of our 'deleveraging' virtue, with global debt having grown from $80tn to over $200tn in the last ten years alone (a 10.7% CAGR) and the frightening reality of central bank balance sheet growth of 16% per annum, Bass concludes (rightly) that "you can't do this for very long" as governments infinitely leverage and central banks have begun the endgame of open-ended money-printing. Addressing the question of timing, Bass notes that while Europe and Japan are 'perceived' to be 'staying together' there are in fact devastating losses occurring (ask Greek bond-holders) and he firmly believes that "Germany will never go joint-and-several with the rest of Europe." The world sits at a place it has never been before in peace-time - as far as global debt balances and deficits - and that is why the global investing playbook is so hard. He goes on to address the US fiscal debacle, Japan, hyper-levered economies, delayed inflationary outcomes, and worries that the cost-push (lower GDP, higher CPI) prints are just beginning in Europe. Must watch.
As a fiduciary, and something all investors should consider - "Given what we see coming, our job is not to lose money!"
On Fiscal Cliff: Won't happen - politicians won't fix anything.
On the CBO Budget crisis: As a non-partisan third-party 'accountant', "I can't fix it!"
On Inflation: "It takes time - but it's coming"
On Housing - he doesn't believe housing will go up but has stabilized. "Everyone who ever thought of buying a house, has bought a house" and we need to flush the inventory - which wil take a few years.
On Trading The End of the World: Use Convexity - which is grossly concentrated in Japan
Own anything that is nailed down - productive assets!
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He's wrong about housing.
He's right about housing.
Shouldn't you rename your avatar to NAR?
We're going to see the type of depreciation seen in Japan, just more quickly with the next collapse. Then, it's up to the Fed as to whether they want to throw away the currency financing FDIC.
Well that's just great.
The real estate market is being held up by huge investors that can't put their money anywhere else. What happens when they have to liquidate because of a melt down?
factoid; once ten percent of condo/twnhse complex is rental it locks out most financing and gues who is creating this; the fucking banksters> i will let you figure the rest out. hint: try to sell one of these BITCHEEZ
My dad told me "never buy a condo". That's one of the reasons.
Give those geezers in District C 'tally sticks' to fix their mess...then, pull all their pensions of course
you could save alot of cheese by re-negotiating their contracts. Since they don't get any useful work done...they don't deserve any pension
Too much debt. Really. No shit as anyone that understands basic math can come to this conclusion.
When looking at debt, three initial characteristics must be understood to evaluate the value of the debt. First is the actual collateral securing the debt (think real estate for a mortgage loan). With soverign debt, there is nothing more than a promise by the government to repay (as no collateral has actually been pledged). Strike one. Second would be the ability for the debt to be repaid from future positive cash flow (i.e., cash flow lending). For soverign debt, strike two as this is clearly not going to happen. And finally, the third key item which is looking for a secondary repayment source to cover the debt. In a business, this would be based in an owner offering a personal guarantee to cover a business loan extended. For governments, let's face it as the only real secondary repayment source available are central banks (printing and buying the debt in one fashion or another). Strike three and you're out.
Combining these three debt characteristics with two other key components including having a qualified and credible management team (goes without saying that governments have a big weakness here) and a viable economic plan/strategy (again, basically worthless at the government level), and now you're zero for five on the ability to manage the excessive debt levels. Game over as now, its just a matter of time and pressure.
Also and remember one other critical element with the debt level (especially in the US). Even if the winning party can trim spending or raise taxes by $300 to $500 billion annually, this effort is useless for the following reasons. First, a large annual deficit will still be present. Second, if you normalize interest rates say to even a low range of 2% on average across the board on all US debt, this would add $320 billion of interest payments per year (based on $16 trillion outstanding). Third and maybe most importantly, if the US has to "on board" even just .5% of its off balance sheet obligations (with estimates ranging from $50 trillion to $75 trillion currently) annually, this amounts to another $300 billion in required debt. So the math will never work as while you reduce the deficit by $500 billion, you are going to add another $600 billion when normalized.
If anyone wonders why full and complete accrual/GAAP based accounting is so important, just look to the US government and their use of cash based reporting. Completely and totally unreliable and dishonest.
kyle mentions 250 percent; hmmm we are at 350 percent-53T in 15T econ.(not even mention unfunded fwd obligations)
oh and how much of that gdp is gov spending, which doesn't create a sustaining
factory or value addable capitol? we are soooo fucked sooooon....
Not soon but we are fucked.
I can't understand what people mean when they say "peacetime" while we still have troops fighting in Afghanistan
The Patient (GlobalEconomy) has been and remains on Life Support in the I.C.U. stuck like a pin-cushion with I.V.'s funneling doses of morphine (fiat) into the cancer patient.
No amount of radiation or chemo will resurrect nor cure the disease. The Cancer (Fraud/Corruption) must be gutted!
Basic arithmetic is suggestive that no remedy/fix is plausible.
Prepare - Global Hyperinflation awaits~
It's shocking that the entire problem is not in the hands of politicians anymore. It can't be fixed unless you default or hyperinflate. Both will be very ugly 'solutions'.
A default would be most sensible, but it would mean the end of the US as a world power for a long time. Somehow I don't think politicians will follow this path.
Ouch.
I've said it before and I'll say it again " when the smartest man in the room speaks people should listen"